When it comes to managing your money, you don’t want anyone messing it up — and that includes you. There might come a time where you need to call in reinforcements and hire a financial advisor, especially when you’re making big decisions with your money.
Not everyone’s financial situation calls for the extra help, but in some instances you might need one. Here’s how to tell if getting a financial advisor is right for you.
What financial advisors do
A financial advisor helps individuals manage their money and map out their financial futures. For example, financial advisors can help you plan for retirement, budget, plan your estate and more. They also can help you set your personal financial goals to reach milestones.
For instance, some people might want to buy a house soon while others are focusing on saving for retirement. A good financial advisor takes into account your family, age, career and priorities when crafting your financial goals, and then helps you find out how to reach them.
Keep in mind that goals change. Once you hit that next milestone or you feel like you want to change course, your financial advisor can help you figure out your next steps.
When to get a financial advisor
Not everyone needs a financial advisor, especially since it’s an additional cost. But having the extra help and advice can be paramount in reaching financial goals, especially if you’re feeling stuck or unsure of how to get there.
Here are three key reasons why you may need assistance.
1. Life events
Graduating college, getting married, expanding your family and starting a business are some major life events that might cause you to reevaluate your financial situation. A financial advisor can help you manage these life events while making sure you get or stay on track.
2. Lack of experience
Whether you have complicated finances or you don’t know how certain investments work, hiring a professional can help you grasp concepts you weren’t familiar with. Some people need the extra assistance, and if you have the means, getting personalized help can make a big difference.
3. Strategy development
A financial advisor can help you hone in on your goals and map out a way to achieve them. This can be anything from starting to invest, buying real estate, saving for an emergency or retirement, or something else. Whether you have one main goal or many, a financial advisor is your guide in creating and achieving those goals
Is a financial advisor worth it?
While a financial advisor can help you prioritize your goals and navigate your portfolio, it’s important to understand that there are costs associated with hiring one. Often, financial advisors will charge 1 percent of assets under management (AUM), or the total money you have invested with them. In other words, if they manage $100,000 for you, you will pay them an annual fee of $1,000.
This may be worth it to you if you have a complicated financial situation or you want to be as hands-off as possible. However, that annual fee can chip away at your returns as your money grows. If you are looking for someone to help you navigate a particular life event or set an overall strategy for your finances, you may want to consider a financial advisor with a different payment structure, like an hourly rate or a fixed fee.
Types of financial advisors
There are so many different types of financial advisors that it can be overwhelming. The type to use depends on your needs and goals. A few of the major types of financial advisors include certified financial planners (CFPs), robo-advisors and wealth managers.
| Pros | Cons | Who it’s best for | |
| Certified financial planner (CFP) | Experienced professionals that have studied, practiced and been awarded the CFP designation
Can advise on a broad range of topics Has a fiduciary duty to operate in your best interests |
Relatively high annual fees
May require a significant amount of money to start |
Average investors looking for guidance |
| Robo-advisor | Low annual fees
Often features low account minimums to get started Allows you to “set it and forget it” with automatic deposits, portfolio rebalancing, etc. |
May not include a human advisor to consult with on more specific issues | Beginner investors or those who have limited funds to invest |
| Wealth manager | Specializes in wealth-focused issues
May have more expertise in tax and estate planning May also hold a CFP or other professional designation |
Fees based on AUM can become very expensive
Often requires a significant amount of money to get started |
High-net-worth individuals |
If you’re looking for someone to cheer you on to meet your goals or you have some basic financial questions, you might want to enlist the help of a financial coach or financial consultant. Keep in mind that these folks might not have any certifications, but they do have knowledge in basic financial topics.
It’s a good idea to vet all professionals before paying for services.
Questions to ask a financial advisor
As you’re considering hiring a financial advisor, it’s a good idea to screen possible candidates by asking them a few key questions, such as:
- Are you a fiduciary? A fiduciary is someone who puts the needs of their client above everything else. If you’re looking for someone to always act in your best interest — not theirs or their firm’s — ask if they are a fiduciary. Then get them to put it in writing.
- How are you paid? Financial professionals can be paid in a few different ways: fee-only, commission-based or a mix of both. A fee-only financial advisor means you pay someone for services rendered and they aren’t getting paid by anyone else (like third-party companies). A commission-based or even a fee-based advisor is someone who gets paid by companies for promoting their products. So you could get advice that increases their paycheck but doesn’t necessarily align with your goals or values.
- How will you help me? Having a helpful financial advisor is key, so have them answer this question: “What happens in a market downturn or if I lose my job?” See how they respond in different scenarios. You want someone to help you wade through the rough waters and get you to dry land, so avoid going with someone who could set you up for bad money moves, like making drastic decisions during uncertainty.
Bottom line
While not everyone needs a financial advisor, many people would benefit from personalized advice to help them build a strong financial future. You don’t need to have a lot of wealth to take advantage of a financial advisor. If you’re interested in finding a financial advisor in your area, check out Bankrate’s financial advisor matching tool to find one close to you.
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